EU Capital Markets Union The Norwegian Angle November 22 nd 2017 By Per Erik Stokstad, Finance Norway
Agenda 1. Finance Norway Who we are How we work on EU files 2. CMU The Norwegian perspective Regulatory consequences (EEA) An international capital market 3. Our priorities 2
The trade and employer federation for all banks and insurance companies operating in Norway. More than 240 member companies. Our employees work on regulatory, social, industry and employer issues. Our members: Savings banks Commercial banks Life insurers Non-life insurers Savings bank foundations Mortgage companies Financial conglomerates Other financial companies 3
How we work on EU files Nordic Organizations
Agenda 1. Finance Norway Who we are How we work on EU files 2. CMU The Norwegian perspective Regulatory consequences (EEA) An international capital market 3. Our priorities 5
CMU The Norwegian perspective Jobs, growth and investment Outside the EEA «sphere» Investment Plan for Europe Capital Markets Union Energy Union Digital Single Market 6
CMU The Norwegian perspective (cont.) A plan to unlock funding for Europe s growth Outside the EEA «sphere» CMU Covered Bonds Securitisation Infrastructure investments [ ] Crowdfunding Nonregulatory initiatives EEA-relevant Regulatory initiatives Regulatory initiatives Regulatory initiatives Norwegian legislation [ ] Regulatory initiatives A better functioning common EU/EEA capital market 7
Bn. NOK Dependence on the international capital market 8000 Total net claims (foreign assets) Norges Bank and central government 6000 4000 2000 Life and non-life insurance Investment funds Other Banks and credit institutions Non-financial companies Current account surplus (accumulated) 0-2000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 8 Source: Statistics Norway
Non-financial companies debt 1/3 foreign debt 75% of domestic debt from banks and mortgage companies Banks and mortgage companies State lending institutions Foreign Domestic Finance companies Pension funds, life and nonlife insurance companies Bond and certificate debt Loans from other sources Figures as of 2017Q2. Source: Statistics Norway Figures as of 2017M07. Source: Statistics Norway 9
2007 2008 2009 2010 2011 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 Bn. NOK Bank funding - Covered bonds Covered bonds approx. 23% of banks funding Approx. 57 % (631 bn. NOK) issued in foreign currency primarily EUR 1 200 1 000 800 600 Outstanding volume in different currencies (measured in NOK) Approx. 8% (43 bn. NOK*) foreign ownership of covered bonds denominated in NOK 400 200 - NOK EUR USD Other Government bonds *This figure is based on covered bonds registered with The Norwegian Central Securities Depository (VPS) 10 Source: Norwegian CB issuers, Norges Bank
SEAFOOD SHIPPING ENERGY Oslo Stock Exchange An international market # 1 Europe # 2 Europe Investors at Oslo Børs Oil service no. of companies Energy no. of companies Foreign; 38% # 1 Europe # 2 Globally Domestic; 62% No. of companies No. of companies Foreign investors* at Oslo Børs Nr. 1 Globally No. of companies and market cap International investors account for 1/3 of holdings in Oslo Børs listed companies and dominate activity, accounting for 2/3 of daily trading Source: Oslo Børs EU - Rest 41 % EU - Nordics 11 % Rest of the world 48 % *Investors/Custodians 11
EUropeans strongly into the Norwegian banking market Largest banks. Ranked by total assets Bank Type Origin DNB Bank ASA Nordea Bank AB Branch Sweden Danske Bank Branch Denmark Svenska Handelsbanken AB Branch Sweden SpareBank 1 SR-Bank Sparebanken Vest Santander Consumer Bank AS Subsidiary Spain SpareBank 1 SMN SEB AB Branch Sweden Sparebanken Sør SpareBank 1 Østlandet SpareBank 1 Nord-Norge Sbanken ASA Swedbank AB Branch Sweden Market shares foreign branches as of 31.12.2015 with Nordea is included as a branch Retail market Deposit taking banks Norwegian institutions 125 Foreign subsidiaries 1 Foreign branches 11 Total 137 Gross lending Corporate market Retail market Number Deposits Corporate market 16% 36% 17% 30% Source: The Norwegian Central Bank Source: Norwegian FSA Source: Norwegian FSA 12
non-life EU insurers in Norway Market shares* based on premiums life Other** 28,9 % Gjensidige 25,9 % Other** 22,1 % DNB Livsforsikring 15,7 % SpareBank 1 9,6 % If (Finland) 21,5 % Storebrand Livsforsikring 17,8 % KLP 32,4 % Tryg (Denmark) 14,1 % Nordea Liv (Subsidiary - Sweden) 12,0 % Source: Finance Norway * Finance Norway s members ** Majority Norwegian 13
Money market based on the foreign exchange market Lending activity - April 2017 Lending 12M 6M 3M 1M 1W T/N ON Borrowing NOK Billions -40-30 -20-10 0 10 20 30 40 Unsecured Repo Currency Swaps 5 out of 6 Nibor (Norwegian Interbank Offered Rate) panel banks are Swedish or Danish Source: The Norwegian Central Bank s Money Market Survey 2017 14
Agenda 1. Finance Norway Who we are How we work on EU files 2. CMU The Norwegian perspective Regulatory consequences (EEA) An international capital market 3. Our priorities 15
Covered Bonds Securitisation SME Green Finance Solvency II and infrastructure investments Crowdfunding Our CMU priorities Pan-European Personal Pension Product EMIR Insolvency Prospectus Others Extract from CMU Mid-Term Review 16
CMU Mid-term review: Shadow Ratings ESMA has strongly indicated that publishing «shadow ratings» are prohibited by the Credit Rating Agency Regulation (CRAR) Finance Norway, March 2017: Official ratings are too costly and require too much internal resources for small and mid-sized issuers. Prohibiting «shadow ratings» would work against the purposes of CMU. Proposal for amendment to CRAR Article 2 Commission Expert Group on Corporate Bonds, November 2017: The Expert Group recommends that the Commission explores different mechanisms that would enable smaller issuers that cannot afford expensive ratings to receive an independent and objective credit assessment. This would greatly enhance the ability of small and medium-sized issuers to reach a critical investor base and make bond issuance meaningful. 17
Covered Bonds CMU initiative to propose a European covered bond framework in Q1 2018 A well-functioning market in Norway. Framework well aligned with EBA best practice Our position: Important that the forthcoming framework is principle-based and built on the well-functioning national systems; If it ain t broke don t fix it! 18
Securitisation European securitisation markets subdued after US subprime crisis New EU legislation on securitisation from January 1, 2019 Goal: To facilitate the development of a securitisation market in Europe Securitisation removed from Norwegian legislation in 2016 Our position: Important to quickly reinstate securitisation in Norwegian legislation following EU-implementation 19
SME Small and medium-sized enterprises (SMEs) represent 99% of all businesses in the EU CMU goal: Broadening access to finance for SMEs. Ensure adequate flow of credit. Widening of SME Supporting Factor introduced in CRR in 2014 to avoid tightened lending following stricter general capital requirements on banks. SME Supporting Factor is to be introduced in Norwegian legislation Our position: SME Supporting Factor important for bank s capacity for lending 20
Green Finance High-Level Expert Group on Sustainable Finance launched in October 2016 Goal: To help to develop an EU strategy on sustainable finance to integrate sustainability into EU financial policy Interim report issued in July 2017 Our position: The financial industry has an essential role in the transition towards a sustainable financial system. Important to avoid regulatory disincentives. (Ensure continued risk based approach) 21
Solvency II and infrastructure investments Limited investments in infrastructure by insurers due to overly restrictive capital requirements CMU: Lower Solvency II risk charges for investments in infrastructure Goal: To make infrastructure investments more attractive to insurers Our position: Adequately calibrated risk charges makes infrastructure investments more attractive for insurers. Actual investments will depend on the availability of economically sound projects 22
Crowdfunding Emerging, rapidly growing alternative form of financing. Mainly web based. 30.10.2017 EU Commission: Inception impact assessment - Legislative proposal for an EU framework on crowd and peer to peer finance Our position submitted 20.11.2017: Finance Norway welcomes the initiative [ ] crowdfunding has developed better in jurisdictions with a relevant and transparent regulation than in jurisdiction without [ ]. The objectives [ ] are important and relevant [ ] important that such a framework secures a level playing field for more traditional banks and investment firms competing with the platforms. [ ] same risk same activity same regulation 23
Agenda Finance Norway Who we are How we work on EU files CMU The Norwegian perspective Regulatory consequences (EEA) An international capital market Our priorities 24
Questions? 25